Category Archives: Venture Contests

A portable device to quickly diagnose strokes. An additive that doubles the strength of fiberglass and carbon fibre materials. A new way to use magnesium to heal broken bones. Those are just a few of the dozens of startups I saw earlier this month at the annual Rice Business Plan Competition. This was the tenth year I’ve been a judge. It gets better every year. Two days of plans and pitches. I wouldn’t miss it. The picture here shows the finals, six amazing finalist teams competing for 300 judges in a very full Rice business school auditorium.

More than $1.2 billion in funding

As a judge of this event, I read six business plans cover to cover. Then I spent two days watching and asking questions as several dozen startup teams pitch their startups. I do six of them on Friday and 10 on Saturday, which includes six finalists. The pitches take 20 minutes or so, and of course they include questions and answers. The 42 startups chosen from more than 700 applicants must have at least one student, and only the students can do the pitch. They come from all over the United States, plus Canada, U.K., Germany, India, and Hong Kong.

In the 10 years I’ve been doing this, the startups get steadily better. At least 80 percent of the ones I saw this year look like they should be getting angel investment, and all of the six finalists will get funded for sure, and launch. The statistics get steadily more impressive. Here are some numbers published by the organizers:

In 2016 we screened more than 750 applications. More than 180 corporate and private sponsors support the business plan competition. Venture capitalists and other investors from around the country volunteer their time to judge the competition, with the majority of the 275+ judges coming from the investment sector. 161 past competitors have gone on to successfully launch their businesses and are still in business today, with another 15 having successful exits. These companies have raised in excess of $1.2 billion in funding.

Serious investment possibilities

This year’s winner developed a portable device that identifies stroke victims fast. Although their pitch at Rice isn’t public, they link to a previous pitch presentation. This is Forest Devices, from Carnegie Mellon.

Forest Devices earned $635,000 in prize money and investment. Most of this is conditional, tied to angel investment that comes with fairly standard conditions including equity for the investors. Most of the teams end up accepting the terms and taking the investment, although that generally takes a few weeks of legal work before it’s final.

Medical Magnesium, which finished in third place, landed $709,000 in proposed investment with term sheets. It is developing bioabsorbable magnesium implants that turn into bone instead of being removed. It came from the University of Aachen, in Germany.

Palo Alto Software gives a prize for the best written business plan entered. This year that prize went to AIM Tech, from the University of Michigan. It develops low-tech, low-cost medical devices for emerging marketings, including an award-winning low-tech infant ventilator.

I just answered this questionon Quora. I think it’s an interesting question, one that comes up often enough, and one whose answer is worth considering.

How can I write a very accurate business plan. I’m hoping to win a grant in a business plan competition?

The rest of this post is my answer on Quora, reposted here with Quora’s (implied) permission:

This is an important question, but also a big one, hard to answer in a few hundred words. And I’m going to stick with the subset of business plans that apply to business plan competitions. These are more traditional and formal business plans, written to communicate with outsiders, and therefore significantly bigger than the lean plan (see below) you need to just run a business.

What Accuracy Means in a Business Plan

It starts with this: in your summary and descriptions of the business model, company formation, market, business offering, and management team, your readers take accuracy for granted and so should you. Tell the truth about your business and what you plan to do. Period. Accuracy isn’t a variable.

I have to guess that you bring up accuracy in the context of projections, specifically your market forecast, sales forecast, projected profit and loss, projected balance sheet, and projected cash flow.

Accuracy in market information

With market information, make sure you distinguish between the statistics, demographics, and descriptions you present as facts – external available information, with sources cites – and estimates and projections.

Approach this with the understanding that there are no facts about the future, just guesses; and there is no guarantee that the information you’d like to have will be publicly available. So therefore you have to develop reasonable estimates, based on assumptions, for which accuracy is mainly a matter of making your assumptions logical, and transparent.

Here’s a real example from a plan I was involved in recently for a social media consulting firm (Have Presence):

The target market is small business owners who want social media presence, don’t want to do it themselves (or don’t have time), and have the budget to pay for a service.

To develop an estimate for the U.S. portion of the market, I start with known statistics on small businesses in the U.S. and cite the source (in this case, the U.S. Small Business Administration), to arrive at some number, say 5.5 million (I’m not taking the time, while answering, to go check the actual number; but it’s a real number, publicly available, with a reliable source).

From there I have to make an estimate of how many of those 5.5 million business owners meet the criteria of wanting presence, not doing it themselves, and having budget. There is no way to get the actual number with any accuracy. I have to estimate. And whether I end up saying it’s 2%, 5%, 10% or 20%, the quality of accuracy in this specific case is a combination of going from known statistics to estimates, and keeping the estimates clarified.

If I really cared – perhaps because I was entering a business plan contest with my plan – I could probably figure out how to educate my guess in point #3 by looking at Facebook statistics, Twitter statistics, businesses by number of employees, and so forth – that would still leave me with estimates, but better estimates. In fact, I’m fine with what I did in point #3 because that tells me there is enough market to go for … whether it’s half a million to two million potential clients is irrelevant for business decisions, because it’s enough.

So this is just one example. Accurate in market description is a matter of combining what can be known with what can’t be an has to be estimated.

Accuracy in Financial Projections

Financial projections are always wrong, by definition, but they’d better be laid out correctly, reasonable, transparent, in line with industry standards, and, above all, credible.

The goal is to connect the dots in the financials so that spending is in proper proportion to sales and capital resources, and cash flow is sensitive to factors such as sales on account and inventory that make it different from profit and loss. Show that you understand how the financials are going to work in the real world. What drives what.

The sales forecast has to be credible. Make sure you lay it out from the details up, not from top down. That means transparent assumptions about drivers, so for a product in retail channels it’s something like monthly sales per store, and stores carrying the product; and for a web business is traffic via organic, traffic via PPC, and conversion rates; and so on. Definitely not a top-down forecast, meaning show a huge market and a small percent of market.

Profitability has to be credible. One of the most common flaws I see in business plans for competitions is absurd profitability, 30%, 40%, and more as profits to sales, in an industry in which the major players make 5% or 10% on sales. That’s a huge negative. Accuracy in P&L means having realistic percent of sales for marketing expenses, general and admin expenses, and development expenses.

Cash flow has to be credible. Another common flaw is failing to understand how sales on account and accounts receivable affect cash flow for business-to-business businesses; and yet another is failing to see the cash flow implications of having to buy product inventory and carry it before selling it.

Accuracy in the main body, descriptions, etc.

For the rest of the plan, industry information, competitive information, and so on, what’s really important is that you clearly distinguish between factual information from valid sources and guesses and estimates.

One of the worst things you can do in a business plan competition or pitching investors is to get caught presenting as fact something that one of the judges or investors knows is inaccurate. If you aren’t sure, clarify, disclose, call your guesses guesses. And it’s particularly bad to fudge the facts regarding your personal history, your business history, or those of your team members. Don’t cross the lines of accuracy related to degrees, job positions, and past jobs. You need to protect your integrity. And if you blur the truth on purpose, such as saying you studied business at Harvard or Stanford when you were just there for a few weeks in a special course, or when you failed to graduate, that can kill a deal.

I am entering a competition that is asking for a one page business plan and I am having a hard time trying to determine what to put on it and what not to include. What information is absolutely required?

To answer this well I’d need to know the criteria set up for the competition. Some are more concrete than others. Some are more about the idea, but most emphasize investment potential. I think of what I want to see as I review submissions to an angel investment group. These are essential to me:

The problem you solve. This is also called “why-to-buy.” It’s a way to set a target market and potential growth in a single thought. Show the underlying need. And it doesn’t have to be all problems and needs as if your business is going to save the world. Lots of things nobody really needs make good businesses: expensive coffee, gourmet foods, perfume, and so forth.

Your solution. This is your business offering, what you sell. The more new and different, the better – as long as it’s credible. Validation – users, buyers, pre-sales on Kickstarter, for example – is great if you have it

Why you. What’s so special about you that makes your solution interesting. That might be technology, positioning, secret sauce, management experience, traction.

Management team experience. Experience with startups is especially important, but whatever lends credibility to your ability to deliver the solution.

Growth goals. Show projected annual revenue for 3-5 years, if that’s an interesting number; or projected growth in users, downloads, subscribers, unique visits or something like that, if that’s an interesting number. If you can, show it as a small bar chart.

The one page business plan is metaphor for short and simple, a business summary. It’s named incorrectly but it can still be useful. Even a 60-second elevator speech can be useful. Summarizing is a good thing. But I’d rather see a 2-5 page summary than a single page; and I’d rather take it as a summary, not a plan.

I’m biased of course but LivePlan does a great one-page summary that it calls a pitch, which shows problem, solution, market, secret sauce, milestones, revenue, and team leaders.

How do you do a winning business plan for a business plan competition? I’m glad you asked. I’m a frequent judge of these competitions so it’s in my interest to help you improve your chances by developing a better business plan, pitch presentation, summary, and elevator speech.

Here’s how the process works, with regard to what you deliver and how decisions are made:

You submit either a business plan or executive summary to a steering committee that selects a few dozen entrants from hundreds of submissions. These committees vary. Many still use the full plan, but trends favor just the summary. This step takes place behind the scenes, before the visible portion of the competition begins. The entries selected are called semi-finalists. They are invited to go to the competition, at the site, which usually involves a Thursday, Friday, and Saturday, most often in April or May.

Semi-finalists are divided into groups of four to six. Semi-final judges, mostly angel investors, venture capitalists, and executives from sponsor companies, read and evaluate the full business plans before the competition starts.

An elevator speech round happens on the Thursday, in the evening. The teams do a 60-second elevator speech for prizes and awards. Winning that competition doesn’t formally help win the main prize, but informally, it affects the judges who see it. About half the judges will attend that first evening.

The semi-final round takes place on Friday. Teams do pitch presentations and answer questions from the judges assigned to their group, who have read their business plans. Judges choose a finalist based not on the quality of business as a potential investment. The plan matters of course, and the pitch matters as well, but the choice is ultimately about the business. Judges try to make decisions based on investment criteria, including growth potential, defensibility, scalability, and experience of the management team.

Finalists go through the same gauntlet on Saturday. Finals judges read the plans, listen to pitches, and ask questions. They choose the winner based on the same criteria they use to choose investments.

In all of these competitions, the judges are told to choose the best plan for outside investors, not the best-written or most attractively formatted business plan. So, a mediocre business plan for a great business will always beat a great business plan for a mediocre business. What you want from your business plan is to present your business well in a way that makes it easy for judges to see what you have. Your business plan alone isn’t enough to determine your fate in these competitions, but it does provide the first impression and the detailed background. In fact, all three of the competitions I mentioned above have special prizes for the best business plan, but those awards pale in comparison to the main prizes.

Therefore, the best way to help your chances with your business plan is to make sure the judges see the critical elements that make a business attractive to investors: potential growth and scalability, proprietary technology or some other kind of barriers to entry, and an experienced management team.

Here are some related tips that might also help:

Make sure you cover the information investors want. Tell a convincing story about the problem you solve and the solution you offer, in a way that will interest the investors and let them believe your market story. Show whatever traction you have, and as much startup experience in the management team as you can. Show how your business will defend itself (proprietary technology, trade secrets, whatever secret sauce you have) from competitors entering the market. Show how you can scale up for high growth. Show that you understand how exits might work in 3-5 years.

Keep it brief. Be concise. Don’t show off your knowledge, push your main points forward. Bullet points are appreciated.

Show your numbers and your key assumptions. Numbers without assumptions and underlying story are useless. Forget present value and IRR games that depend on future assumptions. Show unit economics and build forecasts bottom up, from assumptions, not ever as some small percentage of a big market.

Use illustrations that simplify and explain. Have the detailed numbers to back them up, of course, but use bar charts and line charts and pie charts to help readers get the idea quickly.

Maintain alignment between the key points you emphasize in the business plan, the pitch presentation, and the elevator speech. Ideally your business plan is like the screenplay for the pitch presentation and the elevator speech.

Don’t be afraid to revise numbers constantly, and don’t apologize if the numbers you show today are different from what you showed yesterday. Plans are supposed to evolve constantly.

Both of these victories matter. The Venture Labs competition pits winners of other competitions against each other. It was the first of the big MBA-level business plan competitions when it began in 1984, and bills itself as the SuperBowl of these contest. The Rice version has the highest payoff, more than $1.5 million total prizes, and close to $1 million for the winners. Both of them require at least one MBA student, from any accredited institution, for eligibility. Both of them include startups from Asia, Latin America, and Europe.

I haven’t read the NuMat business plan, but I did see the NuMat pitch, which was sensational. The key was explaining the science just enough to be credible, focusing on the business, and keeping it clear and flowing from point to point. I hope NuMaT will do an online video of that so you can see it.

In the meantime, I’ve embedded a very short YouTube video that explains the science surprisingly well in just about one minute. Clearly, somebody on this team is a good communicator:

If you don’t see that here, you can click this link to see it on YouTube. The quick summary is that it seems poised to change the way gases are stored. Think about those very heavy metal compressed gas tanks like the LNG fuel tanks in LNG-powered vehicle. Think what would happen if the same or more gas could be stored in a new substance that wouldn’t let it leak but wouldn’t require compression. This looks like a real game changer.

I wonder if we as a society are ever going to figure out how technology can disrupt our antiquated systems for educating our children.

Think about what’s happened to information, social interaction, research, and business over the web — not to mention mobile technology — and then think about education. Preschool, K-12, and higher education.

Would anybody disagree that the institutions we depended on as kids are now embattled and crumbling as a result of political and economic factors? Higher ed has had the worst inflation of any industry I can think of over the last two generations. And the K-12 still depends on the old model of the teacher and two or three dozen students in a single classroom.

Innovation, yes, all over the place … but has it really changed anything yet?

(The innovative minds at TED have brought a new educational video website to the head of the class. Today, TED-Ed launched http://ed.ted.com a site that features TED-Ed’s original K-12 animated videos with accompanying lessons and quizzes. On top of that, the site allows educators to create original lessons for any YouTube video, rendering the video on a new link where teachers can monitor student progress.

And I’ve subscribed to several and offer several courses at udemy.com myself. And by this time we’ve all heard of Kahn Academy, another compilation of online courses.

How many universities are offering online courses? How many of those are simply free to users? How many at very attractive prices?

But what about attendance, homework, kids doing things they don’t want to do, people growing up, validation, certification, leverage, consistency?

My angel investment group is looking in detail at EdCaliber, which offers online tools for K-12 teachers. And I saw two additional education business plans over the last three weeks at business plan competitions at Rice and the University of Texas.

I’m hoping something really changes public education for the better. I haven’t seen it yet.

Today and tomorrow I’ll be judging the Rice Business Plan Competition again for the fifth time, enjoying the event thoroughly and proud to be a part of it.

This one, now in its 11th year, has prize money totaling $1.3 million. Its also covered in Fortune Magazine and elsewhere, and rivals the University of Texas Venture Labs (formerly Moot Corp), the SuperBowl of business plan contests, in prestige. It’s a real coup for Rice University, Brad Burke, The Rice Alliance for Technology and Entrepreneurship (Brad is managing director), and Brad’s very-well-organized team.

At the kick-off elevator speech competition last night, Brad had some interesting numbers: in 10 years, after a humble beginning, the Rice contest has had 128 competing companies funded, for a total of $450 million.

That number highlights the evolution of these contests. What started at the University of Texas in 1984 as an academic exercise (hence the name “moot corp”) is now a launching pad. There are dozens of these contests every year now. Most of them have ties to MBA programs, and startups need to have at least one member enrolled in an MBA institution. The best of these contests attract very real startups with very real prospects. It used to be that a few were actually launched, and nowadays the majority are launched and funded.

Then, after we heard that number, we saw 42 teams present one-minute elevator speeches. They were timed, 60 seconds each. And there are some very impressive startups in that group. Today will be interesting.

In pitches and presentations everywhere, bright young entrepreneur tells cynical skeptical investors, usually with great pride and flourish, about their fabulous IRR for their great new startup. I get a gag reflex.

IRR stands for internal rate of return. You can check wikipedia or investopedia for what that’s supposed to mean and how it’s calculated. It’s supposed to compare cash spent on an investment, over several years, to cash that comes back, which spits out as a percentage. The higher the IRR, the better. They teach it in business schools. It’s kind of an MBA parlor game. It has some very limited usage in comparing past performance of investments, if you can hold all the definitions stable; think of it in a large company context, corporate investments, and corporate budgets.

IRR in a business pitch insults my intelligence. It depends on projected sales, costs, expenses, financing, investment, and some hypothetical valuation at some hypothetical time some years in the future. That, by definition, is a crock. Show me the projects, yes. Show me Sales, costs and expenses. Show me cash flow. Go ahead, guess at a future valuation, what the heck. I’ll look at how the assumptions come together and realism, or lack of it, on how the pieces mesh. But the IRR, which summarizing multiple layers of uncertainty as one single percentage number, is totally irrelevant at best, and downright annoying when entrepreneurs act like a projected IRR actually means anything.

And it gets worse, too: there’s the widespread misunderstanding that angel investors and venture capitalists have IRR targets. There’s the unspoken but felt thought: “jeez, what do these investors want? They turned down an IRR of 105%!” And you’ll see people, all over the web, asking what kind of yields they have to give to interest investors. What are the targets?

Talking of IRR if a projected shows me only that you’re too close to the academics. Investors will look at your plan, your team, your product/market fit, and your projections; and they’ll decide what they guess about your future. Stop sooner, before you get to IRR. Let it go.

Are you the winner who will be announced next January? If you want to be, get going, because the deadline for entering is June 15.

Picture a large hotel banquet room, something like 50 yards long and 25 yards wide, with a big well-lit stage, two huge video screens, and a podium. It’s set up for a fancy lunch with round tables of eight. The room is full. Media people, including Entrepreneur Magazine, local journalists, business writers, and bloggers are there waiting.

And then the announcement: you are the Entrepreneur of the Year for 2011. You might be the college winner, the emerging entrepreneur winner, or the grand prize entrepreneur of the year winner. There will be videos about you and your business. Imagine winning this prize. This is sponsored jointly by UPS and Entrepreneur Magazine. It’s a big deal.

I’m in Austin TX today looking forward to two full days judging the University of Texas’ Venture Labs business plan competition, which is something like a grand finale, bringing together 36 teams that have won other competitions.

This is the original Moot Corp, started in 1984, the first MBA-level business plan contest that I ever heard of. I’m happy to be here for the fourth year in a row. I’ve read some really good business plans, and I’m looking forward to seeing the teams pitch and take questions. And tomorrow we have a special Palo Alto Software challenge, and then the finals. I expect to be posting about this event next week.

The Osama Raid Live Tweets: This one is off my normal track, but I found it fascinating, something like watching history as it actually happens, in a Twitter sort of way. Damon Clinkscales published a series of tweets from Sohaib Athar, in Pakistan, tweeting about the raid that killed Osama Bin Laden.

A cool infographic called Startups Exposed. I’m like infographics a lot these days, this is a cool new trend. And there’s interesting data in this one, although – I’d take it all as food for thought, not as gospel truth.